1993 (4) TMI 89 - AT - Income Tax

Issues Involved:
1. Guest house expenses
2. Expenses for increase in authorized capital
3. Guarantee commission
4. Building repairs
5. Addition on account of purchases
6. Commutation charges
7. Gratuity liability
8. Closing stock
9. Deduction under Section 80MM of the Income Tax Act
10. Extra shift allowance on electrical machinery
11. Rate of depreciation
12. Investment allowance on R&D assets and other divisions
13. Foreign tour expenses
14. Deduction under Section 80J of the Income Tax Act
15. Interest under Section 215 of the Income Tax Act
16. Contribution to Sarabhai Research Centre and Provident Fund

Detailed Analysis:

1. Guest House Expenses:
The first ground relates to guest house expenses amounting to Rs. 5,368. The point in controversy was covered by the decision of the Tribunal in the case of Sarabhai Chemicals Pvt. Ltd., where the Tribunal confirmed the decision of CIT(A) allowing guest house expenses to the extent of 1/3rd as attributable to employees. This ground was not pressed and is rejected.

2. Expenses for Increase in Authorized Capital:
The second ground involves expenses of Rs. 70,000 for an increase in authorized capital. The Tribunal followed its earlier decision in the case of Sarabhai Chemicals Pvt. Ltd., which was against the assessee. This ground was also rejected.

3. Guarantee Commission:
The third ground concerns a guarantee commission of Rs. 3,16,668. The Tribunal followed its earlier decision in the case of Sarabhai Chemicals Pvt. Ltd., where the matter is pending before the High Court. This ground was rejected to keep the issue alive.

4. Building Repairs:
The fourth ground relates to building repairs amounting to Rs. 1,04,776. The ITO disallowed the deduction, considering it capital expenditure. The CIT(A) upheld this view, and the Tribunal saw no justification to differ. This ground was rejected.

5. Addition on Account of Purchases:
The fifth ground involves an addition on account of purchases amounting to Rs. 4,72,232. The CIT(A) had set aside the ITO's finding with a direction to record a fresh finding. The assessee did not press this ground due to subsequent events. This ground was rejected.

6. Commutation Charges:
The sixth ground pertains to commutation charges amounting to Rs. 32,50,557. The ITO assessed this amount as income, considering it trading profit or alternatively short-term capital gains. The CIT(A) held it as revenue income under Section 28. The Tribunal found that the commutation charges represented a reduction in capital liability and did not have the characteristic of income. This ground was accepted, and the addition was deleted.

7. Gratuity Liability:
The seventh ground relates to gratuity liability of Rs. 2,95,207. The point in controversy was covered against the assessee by the Supreme Court decision in Sajjan Mills Ltd. vs. CIT. This ground was not pressed and rejected.

8. Closing Stock:
The eighth ground involves closing stock amounting to Rs. 19,37,411. The CIT(A) directed the ITO to record a fresh finding, and the ITO deleted the entire addition. This ground was not pressed and rejected.

9. Deduction Under Section 80MM:
The ninth ground relates to a deduction under Section 80MM amounting to Rs. 11,34,243. The Tribunal followed its earlier decision, which was against the assessee, and the Special Leave Petition was dismissed by the Supreme Court. This ground was not pressed and rejected.

10. Extra Shift Allowance on Electrical Machinery:
The tenth ground (a) concerns extra shift allowance on electrical machinery amounting to Rs. 10,263. The Tribunal confirmed the disallowance as the machinery in question was specifically excepted from extra shift allowance.

11. Rate of Depreciation:
The tenth ground (b) raises a dispute on whether the rate of depreciation should be 10% or 15%, amounting to Rs. 70,163. The Tribunal followed its earlier decision against the assessee. This ground was not pressed and rejected.

12. Investment Allowance on R&D Assets and Other Divisions:
Grounds 11(a), 11(b), 11(c), and 11(d) relate to investment allowance on R&D assets and various divisions. These grounds were not pressed and rejected.

13. Foreign Tour Expenses:
The twelfth ground involves foreign tour expenses of Rs. 7,903. The ITO disallowed this as capital expenditure, and the CIT(A) confirmed this view. The Tribunal upheld the disallowance.

14. Deduction Under Section 80J:
The thirteenth ground relates to deduction under Section 80J amounting to Rs. 1,58,873. The ground was not pressed in view of the Supreme Court decision in Lohia Machine Ltd. vs. Union of India. This ground was rejected.

15. Interest Under Section 215:
The last ground relates to interest under Section 215. The Tribunal directed the ITO to recompute the interest after giving effect to the Tribunal's order.

16. Contribution to Sarabhai Research Centre and Provident Fund:
In the Departmental appeal, the first ground concerns the contribution to Sarabhai Research Centre, which was allowed as a deduction under Section 35(1)(i) and alternatively under Section 37. The second ground involves the contribution to the Provident Fund for employees of STDS Pvt. Ltd., which was also allowed. Both grounds were rejected by the Tribunal.

Conclusion:
The appeal ITA No. 743/Ahd/1983 is partly allowed. The appeal ITA No. 856/Ahd/1983 is allowed. The Departmental appeal is dismissed.

← Previous Next →